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A recent Program Manager Technical Assistance (PMTA) opinion (CC:NTA-POSTN-132247-16) issued by the attorney to the National Taxpayer Advocate provides insight on taxpayer assistance orders (TAOs). Only select employees of the Taxpayer Advocate Service (TAS) can issue TAOs. Taxpayer representatives benefit from understanding TAOs because having the authorized TAS employee issue a TAO on behalf of your client can go a long way toward resolving a case in which the IRS has taken an incorrect or unreasonable position that you cannot otherwise convince it to reverse. The PMTA does not describe how to obtain a TAO but instead describes the process within TAS and the operating division after the issuance of a TAO. This post will discuss the process of obtaining a TAO and then the path that the TAO might follow.

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Around the country there are Local Taxpayer Advocates (LTAs) in every state. Larger states have more than one and every service center has one. There are a total of 84 LTAs. If you do not know the LTA for your area, you might want to get to know them because this person will assist you when your client has a serious hardship. Better to know your LTA and develop a relationship of trust before you face the pressure of seeking their assistance with a time sensitive hardship matter. The LTAs constantly have outreach efforts so that representatives in the area of their geographical coverage do know who they are and what they can accomplish.

If your taxpayer experiences significant hardship because of IRS action, and this does not just include collection action, although that is traditionally a source of hardship, and if your client’s case meets TAS case criteria for acceptance, then the LTA can initiate a TAO ordering the appropriate IRS operating unit to take action or to stop action in order to alleviate the hardship. The power of the LTA to do this derives from IRC 7811 and delegation from the National Taxpayer Advocate. The delegation does not go below the LTA so case advocates working the case with the taxpayer or the representative do not have the authority to issue a TAO but must convince the head of their office, the LTA, to do so.

The LTA will only issue the TAO if convinced that the operating division has acted incorrectly based on the Code or, more likely, the Internal Revenue Manual. The more research you provide to the TAS caseworker and the LTA showing that the IRS has acted inappropriately, the more likely the LTA will consider a TAO. The LTA does not want to issue a TAO and have the operating division point out the basis for the TAO is incorrect since the LTA will lose credibility. Some LTAs issue TAOs regularly and some almost never. In addition to getting to know your LTA, you want to get a sense of whether your LTA has demonstrated a willingness to issue TAOs and under what circumstances.

The PMTA describes the process of what happens after TAS issues the TAO. Before issuing the TAO, the LTA will call the impacted operating division. Let’s say that your small business client was the victim of a fraudulent payroll services provider similar to the unfortunate McDonald’s franchisee I blogged about last year. Your client now owes $40,000 in payroll taxes to the IRS it paid to the payroll services provider but which was stolen. Your client’s business has more than $40,000 in equity and income resources so that it does not qualify for an offer in compromise on doubt as to collectability; however, if it pays over another $40,000 the payment will severely cripple the company. The company makes an effective tax administration offer in compromise of $5,000 which the special OIC unit for ETA offers rejects. You bring the case to the LTA and point out the IRM provisions that suggest the IRS will consider an ETA under these circumstances.

The LTA can issue a TAO to the OIC unit that considers ETA offers asking that it reconsider the OIC taking into account the IRM provisions. First, the LTA will call. After being rebuffed, the LTA will write up the TAO citing to the IRM provisions and detailing the hardship created by the embezzlement. If the manager of the OIC unit refuses to reconsider the OIC, the normal path is for the LTA to forward the TAO to his or her manager, the Deputy Executive Director Case Advocacy (DEDCA). The refusal process may involve phone discussions between the LTA and the OIC manager after receipt of the TAO or it may simply involve a written response denying (appealing) the requested action in the TAO. The LTA cannot accept the OIC but can only use the TAO process to direct and persuade the appropriate function within the IRS to take the action that the LTA thinks would appropriately follow the rules and regulations governing the IRS. When the LTA receives the appeal of the TAO from the operating unit, the LTA can modify or rescind the TAO, or sustain the appeal. If the LTA disagrees with the response, the LTA forwards the appealed TAO to the DEDCA for review. The PMTA describes the process in detail.

If the TAO moves from the LTA to the DEDCA, the DEDCA reviews the TAO to determine its correctness. This process might involve a fair amount of back and forth between the LTA and the DEDCA. Just as the LTA must be persuaded that issuing the TAO will not create an embarrassment, so must the LTA now persuade the DEDCA. The more persuasive the LTA can present the facts and the law (or the IRM) the more likely that the LTA will convince the DEDCA that the TAO should be sustained. If the DEDCA agrees with the TAO, the DEDCA will raise it to the level of the territory manager. The manager of the offer unit knows that this is a possibility from the start and knows that if the OIC unit has followed the wrong process or made a boneheaded decision, this process will shine a light on that fact. Conversely, if the head of the OIC unit feels strongly that they have correctly interpreted the applicable rules and evaluated the circumstances surrounding the OIC, the manager will deny the TAO and stand ready to face the scrutiny from the territory manager. The elevation of the TAO will cause one or more conversations between the territory manager and the OIC manager about the case which may result in acceptance of the TAO or rejection and the rejection may, or may not, include new facts not previously mentioned.

If the territory manager rejects the TAO, then the DEDCA must decide whether to send it to the NTA. If the TAO goes forward to the NTA, she raises it to the Commissioner or Deputy Commissioner. The process provides an interesting dance of competing bureaucratic emotions. The operating divisions hate being told what to do and that they have done something wrong. Many can be quite smug about the correctness with which they handle the matters coming through their office but at the same time they also hate shining the light on their practices to their boss and their boss’ boss. The practice can have good effect of fixing bad practices, it can expose TAS as too overbearing if it pushes a TAO not properly grounded and it can create animosity between TAS and the operating division rather than a spirit of cooperation to reach the right result. Sometimes, TAS becomes more the “enemy” than the taxpayer.

The PMTA focuses on what to do when new facts come to light during the process of the TAO. Because the TAO causes the operating division to carefully look at what it did and to justify its actions, the possibility exists that the action it took was correct for a reason it did not mention to the taxpayer or even to the LTA when the TAO was first issued. The PMTA opines that when the operating division raises new facts in response to a TAO or the appeal of a TAO, the appropriate person within TAS has the ability to go back to same level of employee within the operating division with a supplemental memo “to the same official addressing the concerns raised in the response and ordering that the official reconsider the matter again in light of the new information before modifying or sustain the TAO to the next level IRS official for further consideration.”

The current IRM does not address the situation of sending the case back from the same level for reconsideration. The IRM contemplates a back and forth but does not mention this formal move seeking reconsideration. The guidance here is not radical and simply formalizes what probably was happening in a less formal way. It does provide a formal opportunity for clarification and resolution of the issue at lower levels. Such a resolution is good for the taxpayer and the IRS. Because the TAS is a voice for taxpayers behind the curtain of the IRS, we do not get to see what goes on between the two sides in the TAO disputes. The PMTA gives a good description of the process. For taxpayers being “represented” by TAS in this process and for taxpayers or representatives considering the use of TAS to resolve a problem, understanding the process and the possibilities makes use of the process more possible. If done correctly, it has the ability to greatly assist taxpayers, to fix systemic problems within the IRS and to avoid litigation or feelings of utter frustration.

There is a lot to digest in the 2016 National Taxpayer Advocate Annual Report that was released earlier this month. One of the new parts of the 2016 report was the creation of a taxpayer rights assessment, which reviews IRS performance measures and data organized around the ten taxpayer rights embedded in the Taxpayer Bill of Rights. The general idea is to further cement the notions of taxpayer rights into the calculus of good tax administration.

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As the report discusses, this is a work in progress, both in identifying what are the appropriate ways to illustrate IRS performance relating to taxpayer rights and in ensuring that IRS or an outside group can observe and report on those tasks.

The initial assessment compares and reports on FY 2015 and 2016 metrics, including the following:

percentage of phone calls to IRS answered,

the no change, agreed and non response rate for correspondence, field and office exams,

the numbers of e-filed and paper filed returns by preparers and taxpayers directly,

numbers of returns submitted through the Free File consortium, by VITA and other volunteer groups,

the average days needed to resolve EITC and other correspondence examinations,

the numbers of submitted and accepted collection alternatives like offers and installment agreements,

and the number of tax clinics and volunteers hours at those clinics.

There are lots of items identified where there was no data available, such as numbers of math error adjustments that were abated, the percentage of taxpayers who felt their issues were resolved after contacting IRS by phone, and satisfaction relating to a variety of Appeals functions.

A taxpayer rights assessment is a great idea. One of the common critiques of taxpayer rights provisions is that in some cases an agency that violates a taxpayer’s rights may not lead to the taxpayer enjoying a specific remedy. No doubt when Congress wants to get an agency’s attention it can be specific in providing a consequence, such as monetary damages or a shift in the burden of proof if a dispute finds its way in court.

Yet the absence of a remedy does not mean that there are no other ways to encourage good agency practice. My research in the ways that agencies interact with regulated parties outside the tax system suggests that softer notions like employee training and mission statements that specifically address aspirational conduct and respect for the rights of those who are regulated can have an impact on rights that agencies should aspire to protect. In addition, transparency surrounding agency performance can influence agency conduct. An annual taxpayer rights assessment has the potential for encouraging the IRS to do the right thing in the absence of a specific statutory consequence for failing to do so.

I am working on a paper discussing the role of taxpayer rights and compliance. Part of my paper focuses on how IRS metrics on its audits justifiably key in on revenue protected and on important metrics like the percentage of taxpayers who fail to respond to IRS correspondence audits and agree with IRS proposed adjustments. Absent from the equation has been the percentage of taxpayers who following an adjustment understand why in fact their return as filed was incorrect or whether the taxpayer felt that she had a fair shake in presenting information to justify a tax return position or explain why the taxpayer may have taken a position on a return.

To be sure, measuring taxpayer reaction is costly, and IRS has lots on its plate. It seems to me that good administration includes trying to assess more methodically how IRS is doing around the rights that are reflected in the 2014 Taxpayer Bill of Rights. I look forward to this hopefully becoming a regular part of the annual reports and more importantly it becoming inculcated in how IRS thinks it is doing in administering the tax laws.

For our prior post on the 2016 Report generally as well as links to the different volumes of the Report see NTA Releases Annual Report.

Sidebar: Taxpayer Rights Conference

The Institute for Austrian and International Tax Law at WU (Vienna University of Economics and Business) is hosting the second international taxpayer rights conference in Vienna on March 13 and 14. The conference is convened by the National Taxpayer Advocate and is sponsored in part by Tax Analysts. The conference promises to bring together an eclectic group of scholars and tax administrators. Details on the conference can be found here.

Volume 2 contains the IRS’s response to the administrative recommendations that the NTA made in her 2015 annual report.

As usual, there is lots in the report. I provide the links with the hope that I will come back to this in a future post. Some quick things jump out, however.

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The NTA is hoping to get additional input on the needs of taxpayers as the IRS continues with its plans to modernize the way in interacts with taxpayers. Given the importance of this issue to tax administration, the NTA in its press release states that Future State is “its most important area of focus.” The public forums will continue and TAS will be conducting a nationwide survey to learn more about taxpayer “needs, preferences, and experience with IRS taxpayer service and will hold focus groups on the IRS Future State at the IRS Tax Forums this summer.”

The press release summarizes the good news when looking at the last filing season:

The report says the IRS delivered a generally successful filing season in 2016. Of particular note, the IRS substantially improved taxpayer service on its toll-free telephone lines as compared with 2015. In every year since FY 2008, the IRS has received more than 100 million telephone calls. During the 2015 filing season, IRS telephone service reached a low; the IRS answered only 37 percent of taxpayer calls routed to customer service representatives overall, and the wait time for taxpayers who got through averaged 23 minutes. During the 2016 filing season, the IRS answered 73 percent of its calls, and the wait time dropped to 11 minutes. Thus, the IRS nearly doubled the percentage of calls it answered and reduced wait times by more than half.

Volume 2 contains the IRS’s response to the recommendations in the 2015 year end report. According to the press release, “IRS has implemented or agreed to implement 65 of the Advocate’s recommendations, or 56 percent.” The volume also contains in some instances replies from TAS to IRS responses. As the NTA notes, this exchange is important:

People who work in the field of tax administration and taxpayers generally can benefit greatly from reading the agency responses to our report,” Ms. Olson said. “Tax administration is a complex field with many trade-offs required. Reading both my office’s critique and IRS’s responses in combination will provide readers with a broader perspective on key issues, the IRS’s rationale for its policies and procedures, and alternative options we recommend.”

Kudos to TAS and IRS for engaging with the key issues of tax administration and providing a forum for an exchange of views and greater transparency in tax administration.

The duties of the National Taxpayer Advocate (NTA) are set out in IRC 7803(c). Section 7803 describes the duties not only of the NTA but also of the Commissioner, the Chief Counsel and the Treasury Inspector General for Tax Administration. The code section merits reading because of the roadmap it provides to various parts of the IRS organization. Included among the duties assigned to the NTA is the duty to “develop guidance to be distributed to all Internal Revenue Service officers and employees outlining the criteria for referral of taxpayer inquiries to local offices of taxpayer advocates…”

In this post I will address the newly listed policy criteria for getting a case into the local Taxpayer Advocate Service (TAS) office. Before doing that, however, a look at the traditional criteria sets the scene. A detailed analysis of the factors for acceptance into TAS and the role of case advocates can be found in the National Taxpayer Advocate’s 2015 annual report.

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The two most common criteria for TAS referral are hardship and repeated failure of the IRS to respond to a taxpayer inquiry. These two criteria, however, only serve as general principles. The actual criteria exist in the Internal Revenue Manual (IRM) 13.1.7.2. TAS breaks the criteria into four categories and describes them in slightly different terms from me. The first category involves cases creating an economic burden (hardship) and allows local TAS offices to accept cases meeting one of four listed economic burden criteria: (1) the taxpayer is experiencing economic harm or is about to suffer economic harm; (2) the taxpayer is facing an immediate threat of adverse action; (3) the taxpayer will incur significant costs if relief is not granted; and (4) the taxpayer will suffer irreparable injury or long-term adverse impact if relief is not granted.

As with any of the TAS criteria discussed here, a taxpayer who can demonstrate to TAS that their case fits into one of the enumerated criteria will have their case accepted by the local taxpayer advocate office and assigned to a case advocate. Having their case assigned to a single advocate can create a significant benefit for many taxpayers whose cases would otherwise end up with a rotating pool of IRS employees at the Automated Call Sites or Correspondence Exam. Except for the fact that the case advocates may have too many cases to effectively handle them all, the single point of contact with a person inside the IRS working to resolve your problem offers a great advantage in trying to work through the maze of the federal tax system.

In addition to the four criteria under the economic burden label, TAS provides three criteria for accepting cases under system burden. In general, these cases involve a failure in the IRS system to operate as intended. The three criteria under this label are: (1) the taxpayer has experienced a delay of more than 30 days to resolve a tax account problem; (2) the taxpayer has not received a response or resolution to the problem or inquiry by the date promised; and (3) a system or procedure has either failed to operate as intended or failed to resolve the taxpayer’s problem or dispute within the IRS. Of course, as the IRS becomes more dysfunctional due to the funding cuts, more cases meet the system burden criteria which means even more work for TAS which means it too has become somewhat dysfunctional because the case advocates there have too much work to do. The failure to properly staff the IRS creates a vicious cycle in this regard.

The eighth criteria for getting a case accepted by TAS goes under the name “best interest of the taxpayer” and seeks to ensure that taxpayers will receive equitable treatment and that their rights as taxpayers receive respect and protection. The IRM describes this criteria as one where the “manner in which the tax laws are being administered raises considerations of equity, or has impaired or will impair the taxpayer’s rights.” Of course, this criterion fits like a glove with the new Taxpayer Bill of Rights and offers the prospect of TAS assistance where the taxpayer can demonstrate that some facet of TBOR has failed in application to their situation. This criterion makes it worthwhile to learn and apply TBOR to every case where you want to seek TAS assistance.

The final basis for getting a case accepted by TAS is public policy. The first eight criteria are essentially static but this last basis changes periodically based on problems that the NTA identifies. On November 2, 2015, the NTA issued TAS-13-1115-007 providing interim guidance on cases TAS will accept based on public policy. The guidance lists three circumstances: (1) organizations where IRS automatically revoked their tax-exempt status because the organization did not file an annual return or notice for three consecutive years; (2) cases involving any tax account-related issue referred to TAS from a Congressional office; and (3) cases involving an IRS levy on any Thrift Savings Plan (TSP) as part of the pilot program in IRS ACS units. I suspect soon the NTA will issue guidance including any case in which a private debt collection company seeks to collect from a taxpayer. She issued such guidance the last time private debt collectors were loosed on taxpayers. It will be interesting to see if private debt collectors are allowed to collect on debts arising from the Affordable Care Act that would otherwise rely essentially on notices and offset.

Of the public policy bases for TAS relief, I want to focus levies issued to TSP. TSP is the 401(k) type plan available to federal employees. This issue only affects current or former federal employees because only these individuals will have such an account. On December 7, 2015, Chief Counsel Notice 2016-001 issued and superseded Chief Counsel Notice 2013-007. These notices provide guidance concerning how the IRS will levy on TSP accounts. Because of an interpretation of the enabling legislation, the IRS has taken the position that it can levy on these accounts to reach funds which the employee could not reach. Ordinarily, a levy on a retirement account only reaches the amount of funds available to the owner of the retirement account at the time of the levy. So, the interpretation with respect to TSP accounts represents a significant departure from the IRS ability to reach funds from any other type of retirement account and has gained the attention of the NTA.

On January 14, 2013, Congress amended 5 U.S.C. § 8437(e)(3) to provide that moneys due and payable from TSP were subject to a Federal tax levy under I.R.C. § 6331. The provision specifically provides that:

“Moneys due or payable from the Thrift Savings Fund to any individual and, in the case of an individual who is an employee or Member (or former employee or Member), the balance in the account of the employee or Member (or former employee or Member) shall be subject to legal process for the enforcement of the individual’s legal obligations to provide child support or make alimony payments as provided in section 459 of the Social Security Act (42 U.S.C. 659), the enforcement of an order for restitution under section 3663A of title 18, forfeiture under section 8432(g)(5) of this title, or an obligation of the Executive Director to make a payment to another person under section 8467 of this title, and shall be subject to a Federal tax levy under section 6331 of the Internal Revenue Code of 1986. For the purposes of this paragraph, an amount contributed for the benefit of an individual under section 8432(c)(1) (including any earnings attributable thereto) shall not be considered part of the balance in such individual’s account unless such amount is nonforfeitable, as determined under applicable provisions of section 8432(g).”

On September 10, 2014, the Federal Retirement Thrift Investment Board published final regulations to implement the statute detailing the procedures for complying with federal tax levies on TSP accounts. The regulations allow the IRS to reach the TSP and may go beyond the grant in the statute. In her 2015 annual report the National Taxpayer Advocate identifies levies on retirement accounts as #11 in her most serious problems. The write up regarding this problem does not specifically discuss special problems with the levy on the Thrift Savings Plan but provides useful information for anyone interested in the general issue of the ability of the IRS to levy on retirement accounts and the policies that the IRS applies in making decisions to levy on these accounts. Watch for comments from the NTA on this issue because its location on this list signals that it will receive criticism from the NTA in her annual reports and elsewhere due to the perceived unfairness to federal employees.

If you have an issue that raises policy issues for a group of taxpayers, you can bring this to the attention of the NTA in hopes that it will make the policy list and open the doors to TAS assistance. TAS assistance does not mean that someone whose TSP is levied will get their money back but it does mean that the IRS actions on the account will receive significant scrutiny from the TAS caseworkers who may see procedural irregularities practitioners might find difficult to spot.

Leslie Book

Keith Fogg

T. Keith Fogg is a Clinical Professor of Law at Harvard Law School where he started a tax clinic in 2015. Prior to joining the faculty at Harvard, he began his academic career at Villanova Law School in 2007 after working for over 30 years with the Office of Chief Counsel, IRS. Read More…

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